When does the introduction of a new currency improve welfare?

Max Fuchs and Jochen Michaelis

In recent years, cryptocurrencies such as Bitcoin have emerged, in upcoming years, corporate currencies such as Libra (Diem) and central bank digital currencies will emerge even in low-inflation developed economies. Using the dual currency search model of Kiyotaki and Wright (1993), we show how the introduction of a supplement to traditional money affects average utility. The room for a welfare improvement depends on differences in returns and costs, but, in particular, on the fraction of cash traders who will be replaced by digital money traders.

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Year of publication:	[2021]
Authors:	Fuchs, Max ; Michaelis, Jochen
Publisher:	Marburg : Philipps-University Marburg, School of Business and Economics
Subject:	digital money \| dual currency regime \| welfare comparison \| Theorie \| Theory \| Wechselkurssystem \| Exchange rate regime \| Wohlfahrtsanalyse \| Welfare analysis \| Währungsreform \| Currency reform \| Elektronisches Zahlungsmittel \| Electronic payment \| Wohlfahrtsökonomik \| Welfare economics